Key traits that distinguish a dove from a hawk in the FOMC

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Jun. 26 2014, Updated 9:00 a.m. ET

The dual mandate

Being a hawk or a dove, in finance, refers to the attitude of Federal Reserve policymakers toward inflation. The Federal Reserve has two mandates: to ensure full employment and to bring about price stability (low inflation). Since a monetary policy action focusing on one of these mandates often worsens conditions in the other, the dual mandate is more about achieving a balance among the two. Given that monetary policy is fundamentally about the management of aggregate demand, any Fed policy that pushes towards one goal—for example, higher employment—will move them away from the other goal. For instance, if the Fed prints more money to stimulate the economy and create jobs, the risk that inflation could become a problem rises.

The hawks

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A hawk is a FOMC member who puts more weight on the inflation goal. With the joint mandate, hawks generally think these aren’t independent objectives and that by focusing on inflation, they make the best possible contribution to growth and promoting full employment. Hawks are more inclined to favor tight policy to prevent excess inflation.

FOMC members falling in this category include:

  • Charles I. Plosser, Philadelphia
  • Richard W. Fisher, Dallas
  • Jeffrey M. Lacker, Richmond
  • Esther L. George, Kansas City

The centrists

There are those who don’t strongly focus on either one of the dual mandates are centrists. They neither put more weight on the inflation goal nor weigh the full employment goal as superior to price stability.

These FOMC members include:

  • James Bullard, St. Louis
  • Loretta Mester, Cleveland

The doves

While the hawks worry more about inflation, the doves worry about employment. A dove is a FOMC member who puts more weight on the employment goal.

Doves promote monetary policies that involve the maintenance of low-interest rates, believing that inflation and its negative effects will have a minimal impact on society. Doves prefer low-interest rates as a means of encouraging growth within the economy because this tends to increase demand for consumer borrowing and spur consumer spending. As a result, doves believe the negative effects of low interest rates are negligible in the larger scheme of things. However, if interest rates stay low for an indefinite period, inflation could rise considerably.

FOMC members falling in this category include:

  • Janet L. Yellen, Board of Governors, Chair
  • William C. Dudley, New York, Vice Chairman
  • Daniel K. Tarullo, Board of Governors
  • Narayana Kocherlakota, Minneapolis
  • Charles L. Evans, Chicago
  • John C. Williams, San Francisco
  • Eric S. Rosengren, Boston
  • Dennis P. Lockhart, Atlanta

Though changes in the Fed funds rate directly affect the performance of ETFs tracking short-term Treasury securities like the iShares Barclays 1–3 Year Treasury Bond Fund (SHY), the change cascades along the Treasury yield curve and eventually affects longer-term Treasury tracking ETFs like the iShares Barclays 20 Year Treasury Bond Fund (TLT) even more on account of their higher duration. However, with interest rates low for a while and the market expecting a rise, investors sometimes prefer ETFs that are designed to play rising interest rates, such as the SPDR Barclays Capital Investment Grade Floating Rate ETF (FLRN), which tracks the floating-rate debt of companies like Goldman Sachs (GS) and JP Morgan Chase & Co (JPM).

Read on for insights into the monetary policy stance of each of the dovish FOMC members.

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